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RBC: It Would Take A Lot At This Point To Derail The Taper

FED

RBC saw several signs in the July meeting that tee-ed up tapering.

  • One was the Statement's change to note the economy's "progress" toward the Fed's goals (RBC: "That was a necessary first step to the actual taper announcement.")
  • Another was softening the stance on Covid in the statement (removing "significantly") – "that was at first blush modestly noteworthy, but we understood the full weight of that removal during the presser…when [Powell] was given the opportunity to insert some hesitation around the start of taper he did not take it even with delta becoming front and center. It would take a lot at this point to derail the taper."
  • And on the labor market, "if [Powell] is right [on his positive outlook] (and we think he is) then perhaps there is not such a large bridge between when taper ends and the first hike – at least relative to some of the expectations out there.
  • Future action: December taper, late 2022 hike. After July FOMC, "reasonable chance" (~40%) taper could start in November.
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